Hollins v. Debt Relief of America, 8:06CV508.
| Decision Date | 21 March 2007 |
| Docket Number | No. 8:06CV508.,8:06CV508. |
| Citation | 479 F.Supp.2d 1099 |
| Parties | Ronald W. HOLLINS, Plaintiff, v. DEBT RELIEF OF AMERICA and Mark Williams, Defendants. |
| Court | U.S. District Court — District of Nebraska |
William L. Reinbrecht and Pamela A. Car, of Car & Reinbrecht, P.C., LLO, Omaha, NE, for Plaintiff.
Michaela A. Smith and James P. Fitzgerald of McGrath, North Mullin & Kratz, P.C., LLO, Omaha, NE, for Defendants.
This matter is before the court on defendant Debt Relief of America's ("DRA") motion to stay the proceedings and to compel arbitration, or alternatively, motion to dismiss in favor of arbitration, Filing No. 12. This action was brought as a class action1 concerning alleged violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO") (18 U.S.C. § 1961 et seq.), the Nebraska Consumer Protection Act (Neb.Rev.Stat. § 59-1601 et seq.), and the Nebraska Deceptive Trade Practices Act (Neb.Rev.Stat. § 87-301 et seq.), attributed to a debt relief program's purported fraudulent behavior and hidden and excessive fees. Jurisdiction is proper under 28 U.S.C. § 1331, providing this court original jurisdiction over all civil actions arising under the Constitution and laws of the United States, including 18 U.S.C. § 1964, permitting this court jurisdiction to prevent and restrain violations of RICO, and 28 U.S.C. § 1367, allowing this court supplemental jurisdiction over related claims that form part of the same case or controversy.
DRA, a Texas corporation, with its president, defendant Mark Williams ("Williams"), offers a program to help consumers eliminate their debt by negotiating reduced payoffs in settlement of the debts. In spring 2005, DRA began advertising its debt relief program in the Omaha, Nebraska, area. Plaintiff Ronald W. Hollins ("Hollins"), a resident of LaVista, Nebraska responded to this advertising and contacted DRA. The parties agree that on June 7, 2005, Hollins entered into a Client Negotiation Agreement ("Agreement") with DRA that includes an arbitration provision with a Texas choice-of-law provision. Filing No. 12; Filing No. 14, pp. 6-7. The arbitration provision reads as follows:
11. Arbitration or Dispute: Client agrees that any claim or dispute by either Client or DRA against the other, or against the employees, agents, or assigns of the other arising from or relating in any way to this Agreement shall be resolved by binding arbitration under the auspices of the National Arbitration Forum (NAF) under the Code Procedure in effect at the time the claim is filed. If the NAF, is unable, or unwilling to act as arbitrator, another independent arbitration organization may be substituted at DRA's discretion. Client understands that the result of this arbitration clause is that claims cannot be litigated in court. Venue for such arbitration will be held in the county and city of Dallas, Texas.
This agreement is entered into at Dallas, Texas and venue of all disputes concerning this agreement shall be in Dallas, Dallas County, Texas. The parties agree that Texas law shall apply to the interpretation of this agreement. If any portion of this agreement shall be held to be contrary to law or unenforceable, the remaining portions of this agreement shall not be affected.
Hollins maintains that he received the Agreement, signed it, and immediately returned` it by fax. Hollins claims the arbitration clause was unnoticeable, buried in the fine print of an illegible fax, and was not pointed out to him by anyone at DRA. Hollins alleges that he paid DRA $4,719.84 through a series of wire transfers from his bank account, and although DRA promised to manage his debts, defendants never took any action, to assist Hollins or contact his creditors. Hollins maintains that on the advice of DRA, he ignored his creditors who in turn placed, his accounts in collection. Furthermore, Hollins asserts that he filed bankruptcy because of DRA's alleged misrepresentations. Hollins brought suit in this court requesting certification of a class consisting of all Nebraska residents who paid any amount for DRA's debt relief services within four years prior to the filing of this suit. Pursuant to 18 U.S.C. § 1962(a), Hollins alleges that DRA engaged in a pattern of racketeering activities over a ten-year period, and committed the requisite predicate offenses of mail and wire fraud (Claim I). Hollins requests that this court enter judgment against the defendants for actual damages, prejudgment interest, attorney fees, costs, treble damages, an order enjoining defendants from further engaging in the activities alleged in Hollins' lawsuit, and any other relief the court deems appropriate.
Hollins further alleges that defendants' standard practices are violative of the Nebraska Deceptive Trade Practices Act, Neb. Rev. Stat § 87-302 (2006) (Claim II). Specifically, Hollins contends that DRA deceptively represented the benefits of its services and engaged in the unauthorized practice of law. Hollins requests that this court enter judgment in both his and the class's favor and preliminarily and permanently enjoin the defendants from soliciting and selling its debt relief program in the state of Nebraska. Additionally, Hollins requests that the court award actual damages to himself and the class members, award attorney fees and costs, and any other relief the court deems appropriate.
Pursuant to the Consumer Protection Act, Neb.Rev.Stat. § 59-1601 et seq., Hollins maintains that defendants are persons engaged in trade or commerce, and defendants' unfair and deceptive practices and unauthorized practice of law caused Hollins and the class members financial injury (Claim III). As such, Hollins requests that this court certify the class2 and enter judgment for actual damages, including disgorgement and refund of the amounts paid to DRA, attorney fees and costs, statutory damages, and any other relief the court deems appropriate.
Defendants thereafter brought this motion to stay, claiming that Hollins' claims arise from and relate to the Agreement between Hollins and DRA, and requesting that the court stay Hollins' claims and order that the claims be submitted to arbitration, or alternatively, dismiss Hollins' claims in favor of arbitration. Filing No. 12. Defendants argue that because they entered into a contract as parties from different states, they are subject to the Federal Arbitration Act, 9 U.S.C. § 1 et seq., which preempts any inconsistent state statute. Defendants contend that Hollins did not read the contract and he is now asking the court to find the arbitration clause unenforceable. Furthermore, defendants ask that this court enforce the choice-of-law provision of the Agreement and apply Texas law to determine the validity of the arbitration clause. Defendants claim that the arbitration clause is neither substantively nor procedurally unconscionable, and contention about arbitration being cost prohibitive is speculative. According to defendants, pursuant to National Arbitration Foundation ("NAF") rules, all types of remedies and relief available in court are available in arbitration, and Hollins' claims are arbitrable under a valid and enforceable arbitration clause.
Hollins responded to defendants' motion to dismiss and stated that the Agreement is a standard, preprinted form of poor quality, with small, illegible print that is difficult to read, and that Hollins did not knowingly or voluntarily agree to the arbitration clause. Hollins contends that the arbitration clause is unenforceable, as Hollins did not, as the clause states, enter into the Agreement in Dallas, Texas; rather, he signed the form in Nebraska and faxed it to DRA.
Hollins argues the FAA does not preclude an examination into whether the arbitration agreement at issue is unconscionable under state law. Neb.Rev.Stat. § 25-2602.2 reads as follows: "The following statement shall appear in capitalized, underlined type adjoining the signature block of any standardized agreement in which binding arbitration is the sole remedy for dispute resolution: THIS CONTRACT CONTAINS AN ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES." Neb.Rev.Stat. § 25-2602.02 (2006). Hollins maintains that § 25-2602.02 precludes arbitration of Hollins' claims because the arbitration clause provided for in the Agreement does not contain the required language. Hollins contends that Nebraska law applies in this case as enforceability of arbitration agreements is a matter of state contract law, and Nebraska law concerning arbitration agreements is not preempted.
Hollins further argues that the prohibitive costs of arbitration make arbitration unconscionable, and the arbitration clause is a procedurally and substantively unconscionable contract of adhesion. Alternatively, Hollins argues that even if the arbitration provision is valid, Hollins' statutory claims are not arbitrable and he requests injunctive relief that is not adequately addressable through arbitration. Hollins maintains that because NAF rules do not provide for class actions, the class members will have to seek leave to intervene in Hollins' action, and joinder of an estimated "hundreds if not thousands" of class members is impossible and impracticable. Filing No. 19. According to Hollins, the confidentiality rules of arbitration will negatively impact class members, as opposed to a class action.
Congress enacted the Federal Arbitration Act ("FAA") to reverse judicial hostility to arbitration agreements and place arbitration agreements on equal footing with other contracts. Keymer v. Management Recruiters Int'l, Inc., 169 F.3d 501, 504 (8th Cir.1999). The FAA effectively created a body of "federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the FAA." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103...
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